Charities and internal investigations
On 5 June 2018, a special meeting of the ICAEW is taking place at the conclusion of the organisation’s AGM. For any ICAEW members with an interest in the disciplinary function of their regulator, attendance at this event is a must. Important changes to the Disciplinary Bye Laws, that will potentially affect all members, are being sought. If you cannot make it in person, vote on-line or send a proxy. In these latest proposals there is much to be applauded, but there is also much to be apprehensive about.
The Disciplinary Bye Laws (DBLs) are the rules that the ICAEW and its members are bound by when a complaint is being investigated and/or adjudicated upon. The DBLs set out what conduct is capable of amounting to an allegation that the Investigating Committee (IC) of the ICAEW is permitted to investigate, as well as the process for the determination of such allegations. In short, it is the rule book setting out how complaints against accountants must be dealt with.
I encourage you to read the proposals in full and make your own mind up about which of the proposed amendments you agree with and which you don’t. For the time poor, I have chosen the three that are the most striking and represent a risk to registrant accountants.
The ICAEW is proposing to increase its ability to deploy against members, adverse findings of fact made by UK courts. The proposal to amend the current rule 7.4b, is nestled somewhere in the middle of Resolution 9 (entitled ‘miscellaneous amendments’) and although presented as innocuous, is far more significant that is it billed as. The ICAEW can already use findings of fact from UK courts made against registrants, when they were a party to the proceedings in which the findings were made. The ICAEW is now seeking to allow the introduction into evidence of findings against members when they were not even a party to those proceedings. Crucially, when admitted, it is proposed that such findings will amount to prima facie evidence of the facts found.
Accountants criticised in their absence and perhaps even without their knowledge, are necessarily not able to defend themselves before any such findings are made. They cannot hear the arguments and evidence advanced against them, nor can they advance a reasoned case in response. If passed, this provision will allow the ICAEW to adduce evidence of a judge’s adverse comments made against a member, which they had no opportunity to influence or prevent. Allegations founded on this evidence will invariably pass through the case to answer filter and will leave registrants in the unhappy position of having to try to ‘go behind’ the finding made in absentia, in order to displace the prima facie case that these findings are said to create.
In this proposal (discussed at Resolution 6) the ICAEW is permitted to issue an appeal against an order made by the disciplinary tribunal dismissing a case, if it considers that there was an error of law or in the interpretation of any regulation, if the tribunal based its findings on a material mistake of fact or if significant new evidence has come to light, which was not available at the time of the tribunal hearing.
I am reticent to criticise this proposal; the ICAEW are right, other financial regulators already have this power, because committees do sometimes make perverse decisions. When such decisions are made, they have the ability to undermine trust in the regulator, the profession and leave the public at risk.
I remain uneasy about this new rule though. My concerns are twofold: firstly, regulators always say they will not overuse the power of appeal, when often the converse turns out to be true, leaving accountants uncertain and worrying about whether they will have to defend their ‘win’ on appeal. Secondly, and perhaps more pressingly, is the notion that the ICAEW can appeal where fresh evidence comes to light. With no formal disclosure process in place, it is going to be impossible to know when any ‘new’ evidence actually came to light and the reasons behind its late arrival: could the ICAEW go out and seek to obtain fresh evidence after the conclusion of a case to rebut a point that arose in it? Will this give the ICAEW the ability to plug holes in its case after a decision has been promulgated?
Finality in proceedings is hugely important for all concerned. If these amendments are to be agreed, accountants will need to be reassured that their use is the exception, rather than the norm and that appeals in which fresh evidence is said to exist are subject to anxious scrutiny before they are lodged.
In Resolution 8, there is a further proposal that gives rise to concern. The amendment sought to rule 36.1, proposes that in order to maintain public confidence in the regulatory process, the IC may publish “the reasons why any [complaint], do[es] not give rise to a potential liability or liability to disciplinary action under the bye-law.” In other words, if a complaint is made to the ICAEW and it determines that it does not reach the threshold for investigation under the DBLs, the IC may nevertheless publish the reasons behind its decision not to proceed with an investigation of it.
It is axiomatic that the publication of any aspect of a complaint made to a regulator about a member may have reputational consequences for the respondent or the respondent firm. This proposal places the public interest way ahead of the interests of the member. It is hard to envisage a case in which it is either necessary or proportionate for the interest that the public may have in learning why a complaint was not proceeded with, to outweigh the important rights of members to have their confidentiality respected. Perhaps the ICAEW will be drawn on these important issues at the meeting…
The new proposals include the following, which whilst not objectionable per se, ought to be scrutinised carefully before they are allowed onto the rule book:
Until you receive a complaint, you are unlikely to have had any contact with, or dare I say interest in, the detail of the DBLs; before I became a regulatory lawyer, I had not read the lawyer’s version of these rules either. Having practised in this field for over a decade, I now know that no registered professional, however careful or compliant they might be, is immune from receiving a complaint; it is an occupational hazard. Whether it is a complaint that is internally resolved by your firm or escalated to the ICAEW, it is likely that at some time in your career, you will be the subject of a complaint. Whether the complaint has substance or not is another matter altogether…
No, not at all. The ICAEW is proposing some sensible and fair safeguards for registrants. Of particular note is the plan to introduce time limits for the acceptance of complaints. If Resolution 3 is passed, complaints over three years’ old will not be investigated unless “an investigation is [considered] necessary for the protection of the public or otherwise necessary in the public interest”. This proposal brings the ICAEW in line with many regulators that have a similar cut-off provision, aimed at protecting members from having to defend themselves against stale complaints. Finally and of particular note, is a new rule which provides the opportunity for accountants that are subject to complaints, to avoid a hearing and therefore the consequences of a public decision. Rules 37.16-17 detail the mechanism for members that are subject to complaints to agree to de-register on certain conditions and in consideration for the complaint ‘resting on the file’ (i.e. not proceeded with at that time). This is a sensible mechanism, particularly for accountants will ill health that mean that they will not be practising for the foreseeable future.
Although the Privy Council must formally approve these provisions before they become operative, the only opportunity for members to have a say will be on or before 5 June. As a lawyer that will be working within these rules but that has no say over them, I encourage you to use your voice to make sure that the changes introduced are fair, reasonable and proportionate.
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